Lifetouch purchase brings immediate benefits to Shutterfly

Shutterfly shares jumped nearly 20% last night on the news the leading photo-personalization company was buying the billion-dollar company in the school photography space, Lifetouch National School Studios for $825 million, as well as the report the company beat its fourth-quarter forecasts. The deal includes Lifetouch’s school business, as well as it’s ancillary businesses of church directories, preschool photography, JC Penney retail studios and iMemories. The Glossy Finish mobile sports and event business was divested last fall.

The news sent shockwaves around the industry, as the combination of two giants of their respective spheres presents both opportunities and challenges for competitors. A combined Shutterfly/Lifetouch will be less nimble than ever in the highly competitive school, sports and event photography, a fact independent photo retailers and studios have been able to exploit in the last decade. For Shutterfly, however, the Eden Prairie, Minn., brings nearly $1 billion in revenue, as well as a complementary production to the Shutterfly’s highly seasonal consumer business. Although the Minneapolis Star-Tribunereports staff reductions aren’t “imminent,” it’s certainly a possibility considering Shutterfly has a production facility in nearby Shakopee, Minn.

Indeed, it was a slowing business model that resulted in Lifetouch looking for a buyer, according to the Star-Tribune:

Lifetouch essentially had put itself up for sale in recent months, said its CEO, Michael Meek. He said it wasn’t growing fast enough to generate sufficient cash flow to invest in new technology and in other ways in the business, while cashing out some of its 16,000 employee and former employee owners as they reach retirement age and are eligible to sell their stock back to the company.

Lifetouch was a renowned as one of the largest employee-owned companies in the state; retiree obligations were a considerable expense and a drag on profits, according to reports.

Shutterfly CEO Christopher North says the streamlining of the company’s brands put them in the position to take on Lifetouch.

“Our successful platform consolidation initiative was a significant contributor to our Q4 success. You’ll remember that almost exactly one year ago, we announced a restructuring of our consumer business: simplifying our brand portfolio over the course of 2017, creating a Tiny Prints boutique on a dedicated tab on Shutterfly.com, and shutting down the legacy Tiny Prints, Wedding Paper Divas, and MyPublisher websites while encouraging those customers to migrate to Shutterfly.com,” he said in an earnings call, reported by SeekingAlpha. “Now what we knew that a transition of this magnitude would inevitably lead to the loss of some customers and revenues, we worked hard to minimize the impact through investment. In a simple migration process, integrate new home for Tiny Prints on Shutterfly.com and further differentiating Tiny Prints as a premium brand and in clear customer communications.”

He added: “Turning to the revenue opportunities, Shutterfly and Lifetouch target similar customers. Families who value high quality photographic keepsakes but use very different go-to-market and customer acquisition strategies. Shutterfly serves over 10 million active customers each year, leveraging its strong digital direct to consumer brand. Lifetouch serves over 10 million households photographing more than 25 million children per year reaching them through longstanding relationships with over 50,000 host schools in North America. We see a tremendous opportunity to leverage both channels to reach families with the two companies combined capability.”

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[…] a financial/stock analyst point of view, the Shutterfly/Lifetouch deal makes sense, as we wrote here last week. Despite the combined production capabilities, however, there are nagging problems inherent to […]

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